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Why Barnes & Noble Shares Sank

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Barnes & Noble (NYSE:BKS) were getting crushed today, falling as much as 12%, after its quarterly earnings report came up short.

So what: It wasn't all bad for the inveterate bookseller, as earnings per share actually topped estimates. Analysts had expected a loss of $0.06 per share, but the bookseller delivered a $0.04 EPS loss, and actually had a positive net income when preferred dividends are factored out. However, the Barnes & Noble story has become the Nook story, and losses on the e-reader expanded in the quarter. Sales in that division grew by 6%, and digital content jumped 38%, but expenses also increased by 10%. Overall sales for the company also declined slightly.

Now what: The bookseller's stock had gained about 40% since September 10, so today's pullback could be partly a correction. The new Nook HD and HD+ tablets also came out after the quarter ended; it could see a spike in sales during the holiday season to counter last quarter's extra expenses. Still, profits will be hard to find in the e-reader arena as long as market leader Amazon.com (NASDAQ:AMZN) is content to sell its Kindle at rock-bottom prices. B&N seems to be making all the right moves, but the competitive disadvantage it has in occupying decreasingly valuable real estate may be its ultimate undoing.

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Fool since 2011. I write about consumer goods, the big picture, and whatever else piques my interest. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.
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